GBP/EUR: Pound drops as UK inflation slows

The British pound is lower against the euro on Wednesday after data showed a more tepid pace of UK inflation than expected. At the same time data showed German economic growth slowed substantially in 2019 but the slowdown was in line with expectations.

GBP/EUR was lower by 36 pips (-0.31%) to 1.1167 as of 1pm GMT, leaving the currency pair near the bottom of its 5-day range and just above lows made in December. The British pound had firmed against the euro at the start of trading on Wednesday but encountered resistance at €1.17. The Initial gains turned into losses once trading got underway in Europe.

The pound

UK inflation during December fell at a faster pace than expected in data released Wednesday morning. There were missed expectations across a range of calculations for inflation, including consumer prices, retail prices and producer prices. The Consumer Price Index (CPI) for December rose only 1.3% year-over-year, missing consensus forecasts of a 1.5% y/y rise after a reading of 1.5% in November.

The softer UK inflation is increasing expectations that the Bank of England will cut interest rates in the coming months, perhaps as soon as its meeting on January 30th. Indeed on Wednesday another Bank of England policymaker Michael Saunders said it was probably appropriate to cut UK interest rates. Saunders is already a known dove, so his dovish comments only hit the currency once the inflation data was seen.

The euro

German GDP growth was only 0.6% in 2019, a year in which the country flirted with recession thanks to a big contraction in manufacturing activity. The news did not hamper the euro too heavily since the weakness of the economy by this point is well understood. Looking forward there seems to be no clear path to recovery in some of Germany’s most important heavy goods industries. New environment regulations, including standards on climate change will put pressure on manufacturers. The automotive sector faces specific industry challenges which look unlikely to pass in 2020 as carmakers try to produce and sell electric vehicles. is a news site only and not a currency trading platform. is a site operated by TransferWise Inc. (“We”, “Us”), a Delaware Corporation. We do not guarantee that the website will operate in an uninterrupted or error-free manner or is free of viruses or other harmful components. The content on our site is provided for general information only and is not intended as an exhaustive treatment of its subject. We expressly disclaim any contractual or fiduciary relationship with you on the basis of the content of our site, any you may not rely thereon for any purpose. You should consult with qualified professionals or specialists before taking, or refraining from, any action on the basis of the content on our site. Although we make reasonable efforts to update the information on our site, we make no representations, warranties or guarantees, whether express or implied, that the content on our site is accurate, complete or up to date, and DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Some of the content posted on this site has been commissioned by Us, but is the work of independent contractors. These contractors are not employees, workers, agents or partners of TransferWise and they do not hold themselves out as one. The information and content posted by these independent contractors have not been verified or approved by Us. The views expressed by these independent contractors on do not represent our views.